The Tougher Fights

Watchdog ◽  
2020 ◽  
pp. 160-176
Author(s):  
Richard Cordray
Keyword(s):  
Credit Card ◽  
Financial Protection ◽  
Justice Department ◽  
Credit Reporting ◽  
Bank Employees ◽  
Collection Practices ◽  
Debt Collection

As the Consumer Financial Protection Bureau put down deeper roots, it took on tough issues. It worked with the Justice Department to eradicate discrimination in auto lending, which produced several enforcement actions but not a market-wide solution. It used its supervisory oversight to insist that the credit reporting companies improve the accuracy of their credit files and create reliable processes to correct errors. And it cleaned up abusive debt collection practices through major enforcement actions, by creating new tools to help consumers protect themselves and assert their rights, and by embarking on new rules to protect consumers while clarifying inconsistent and conflicting court rulings under the Fair Debt Collection Practices Act. The chapter also describes the bureau’s work with its partners to address the sprawling scandal at Wells Fargo, where thousands of bank employees misused customers’ data and money to open millions of phony bank and credit card accounts.

scholarly journals Regulatory Arbitrage and Non-Judicial Debt Collection in Central and Eastern Europe - Tax Sheltering and Potential Money Laundering

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Catalin-Gabriel Stanescu ◽  
Camelia Bogdan
Keyword(s):  
Eastern Europe ◽  
Money Laundering ◽  
Central And Eastern Europe ◽  
Regulatory Arbitrage ◽  
Legal Provisions ◽  
Regulatory Standards ◽  
Debt Collectors ◽  
Illegal Activities ◽  
Collection Practices ◽  
Debt Collection

AbstractNon-judicial recovery of debts is now rampant in Central and Eastern Europe (CEE). The reason is two-fold. On the one hand, the significant number of defaults in the poorer areas of Europe makes the CEE region a very attractive market for debt-collection. On the other hand, the activity is almost entirely unregulated, especially regarding abusive debt collection practices. The CEE region still lacks mature, strong, and experienced supervisory agencies that could tackle borderline activities. This enables companies involved in debt collection to comply easily with the minimal legal provisions and to circumvent the actual purpose of the law, including through tax sheltering and money laundering. The main argument developed in the paper is that the debt collection system it is designed to maximize profits, minimize tax base and, potentially, can serve as money laundering mechanism. The system functions in a triadic relationship: the debt-seller (a credit institution), the debt-buyer (usually an investment company), and the debt-administrator (a debt-collection agency, either fully owned by, or under the control of the debt-buyer), where debt portfolios are purchased at huge discounts (varying between 90 and 95% of face value). By revealing the mechanism used by debt-collectors, the paper calls for legislative intervention to seal the gap and ensure adequate taxation of debt-collection activities. The nature of regulatory arbitrage involved relates both to tax law as well as to regulatory standards, such as licensing requirements. Debt buyers benefit from the EU passport rule, make high returns on their 'investments' and optimize their taxes on profits obtained. Debt administrators perform their activity at almost no liability and no tax payable to the state. This mechanism creates favorable premises for money laundering and financing of illegal activities, as the web of offshore companies behind the debt-buyer renders the verification of the origin of their investment money extremely difficult. Using Romania as a case study, the paper addresses not only the aforementioned practices and risks, but also the potential reasons behind the state's inability either to adopt adequate legislation, or to enforce it. In doing so, the paper employs empirical evidence regarding the activity of ten Romanian debt collection agencies and relevant case law thereof. The paper concludes with the authors' proposal for a potential solution, which can be extended beyond Romania.

Credit Solicitations as Market Experiments in the U.S. Credit Card Industry

2017 ◽  
pp. 1-5
Author(s):  
Nabil Al-Najjar ◽  
David Besanko ◽  
Roberto Uchoa
Keyword(s):  
Interest Rates ◽  
Selection Bias ◽  
Credit Card ◽  
Risk Profile ◽  
Average Risk ◽  
Credit Reporting ◽  
Credit Score ◽  
Typical Experiment ◽  
Market Experiments ◽  
The U.S

Describes market experiments conducted by a major credit card issuer. In a typical experiment, the issuer sends out hundreds of thousands of solicitations based on information received from credit reporting agencies (e.g., credit score, past delinquencies, etc.). Selection bias is striking: the average risk profile of those responding to higher interest rates is significantly worse than that of respondents to lower rates. Tracking respondents for 27 months after the experiment, respondents to higher rates displayed significantly higher delinquency and bankruptcy rates. Based on a research paper by Larry Ausubel.

scholarly journals AN ANALYSIS OF THE EFFECT OF CREDIT RISK MANAGEMENT ON PROFITABILITY OF COMMERCIAL BANKS IN KENYA

2016 ◽  
Vol 1 (3) ◽  
pp. 38
Author(s):  
ANTHONY WANJOHI ◽  
MR. BERNARD BAIMWERA
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Commercial Banks ◽  
Secondary Data ◽  
Risk Governance ◽  
Credit Risk Management ◽  
Governance Practices ◽  
Collection Practices ◽  
Debt Collection ◽  
Finance Department

Purpose: The purpose of this study was to analyse the effect of credit risk management on profitability of commercial banks in Kenya.Methodology: This study adopted a descriptive design. The study targeted a population of all the 44 commercial banks with the exception of Charterhouse bank which is under statutory management. The sample of this study was 86 employees out of a possible 30,056 employees from the 43 commercial banks. The sample of 86 was generated by purposively sampling two employees from each bank.  One employee was a manager from the finance department while the other employee was a manager from the credit risk department. The questionnaire comprised of closed ended questions. Secondary data for ROA was identified. SPSS was used to produce frequencies, descriptive and inferential statistics which was used to derive conclusions and generalizations regarding the population. Regression analysis was also used to show the sensitivity of profitability, ROA to various independent variables.Results: The study findings indicated that credit department had various checks during loan credit review. The credit department always checked at the character of the borrower, collateral of the borrower, capacity of the borrower, capital of the borrower, conditions and controls during credit review. Results indicated that the banks had credit appraisal practices, credit monitoring practices, debt collection practices and credit risk governance practices in place. Regression results indicated that there was a positive and significant relationship between credit appraisal, credit monitoring, debt collection and credit risk governance practices and profitability of commercial banks.Unique contribution to theory, practice and policy: The study concluded that credit appraisal, credit monitoring, debt collection and credit risk governance practices had a positive effect on the profitability of commercial banks. The study recommends that the banks should continue emphasizing on the effective credit appraisal, credit monitoring, debt collection and credit risk governance practices so as to enhance maximum profits in banks.

A Powerful Force for Good

Watchdog ◽  
2020 ◽  
pp. 72-88
Author(s):  
Richard Cordray
Keyword(s):  
Law Enforcement ◽  
Credit Card ◽  
The Other ◽  
Financial Protection ◽  
Public Enforcement ◽  
Fair Market

Robust law enforcement is crucial to a fair market. Companies that lie, cheat, or steal take advantage of consumers and the honest companies that they compete against. Congress gave the Consumer Financial Protection Bureau two powerful tools to combat fraudulent, deceptive, and abusive practices by big banks and financial predators. One was the authority to bring public enforcement actions against corporate violators, and the other was to send supervisory teams into the companies themselves, to inspect and monitor how they treat consumers. This chapter tells how the bureau developed and combined these tools and then used them to put over $12 billion back in the pockets of consumers who had been wronged. It also discusses how the bureau used supervisory oversight and enforcement actions to prevent or halt systematic ongoing abuses such as deceptive marketing of credit card add-on products and discriminatory auto lending.

The Making of a Watchdog

Watchdog ◽  
2020 ◽  
pp. 40-54
Author(s):  
Richard Cordray
Keyword(s):  
Credit Card ◽  
Student Loans ◽  
Majority Vote ◽  
The Political ◽  
Financial Protection ◽  
Simple Majority ◽  
Financial Industry ◽  
Political Opposition ◽  
President Obama ◽  
Simple Majority Vote

The Consumer Financial Protection Bureau’s strategy was to push through the political opposition by acting aggressively for consumers. Early on, the bureau worked to make the terms of financial products more understandable for consumers, creating streamlined forms for mortgages, student loans, and credit cards. It took major enforcement actions against credit card companies for deceptive marketing, returning billions of dollars to consumers. As Cordray’s nomination languished in the Senate, President Obama made an extraordinary recess appointment to install him on a temporary basis. The financial industry immediately challenged the appointment in court, and Republicans pushed back hard in tough oversight hearings. In July 2013, the Democratic Senate majority leader, Harry Reid, moved to invoke the “nuclear option” to approve nominations by a simple majority vote. The Republicans yielded, and Cordray was confirmed in a bipartisan vote of sixty-six to thirty-four. In a tough two-year battle, the bureau prevailed over the strenuous opposition.

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